Why cap swipe fees?

Visa and MasterCard stocks fell after the Federal Reserve announced that debit cards could no longer charge high 'swipe fees,' currently around $0.44 per swipe.

By
Jeffrey Tucker, Guest blogger /
December 27, 2010

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Elaine Thompson / AP / File

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In this file photo made Nov. 2, 2009, a customer swipes a MasterCard debit card through a machine while checking-out at a shop in Seattle. Debit card fees have now been capped, so banks can make only 7 to 12 cents per card-swipe, down from the current average of 44 cents per swipe. What motivated the cap?

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Visa and MasterCard were slammed yesterday by the announcement of the Fed’s new price controls on swipe fees for merchants using the cards. This regulation is obviously horrible for consumers and producers and issuers – it is just bad all around and represents a backward step in economic progress. No way will small business benefit, contrary to the claims.

I can’t even imagine what the Fed is thinking here. The logic here seems just about as unsophisticated as anything to come from these people in a long time…many months even. In any case, I’m puzzled. I understand why the Fed bails out big banks (they are friends). I understand the real reason the Fed inflates the money supply (government likes that). I understand the underlying rationale behind most legislation given that it is constructed to benefits the elites at the expense of the people. But I do not get this. I’m asking the question: who benefits from this regulation? What’s the special-interest dynamic at work here?

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